GEETA PRABHUDAS PAWANI, MUMBAI V. ITO WD 23(2)(3), MUMBAI

ITA 4633/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8263 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 06-11-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 09-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUBODH RATNAPARIKH
• Keywords: Reasonable cause
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO. 4633/MUM/2011 ASSESSMENT YEAR : 2003-04 GEETA PRABHUDAS PAWANI PAWANI PLOT, NEAR VIPUL APARTMENT, BHAKTI MARG MULUND (W) MUMBAI. PAN NO.AAFPP 8765 Q VS. INCOME TAX OFFICER WARD 23(2)(3) ROOM NO.24, C-10 PRATYAKSHA KAR BHAVAN BANDRA KURLA COMPLEX MUMBAI-400 051. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBODH RATNA PARIKH RESPONDENT BY : SHRI MOHIT KUMAR DATE OF HEARING : 6.11.2012 DATE OF PRONOUNCEMENT : 16.11.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 4.12.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2003-04. T HE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING ADDITION OF RS.63,87,752/- ON ACCOUNT OF LIQUIDATED DAMAGES WHICH HAS BEEN UPHELD BY C IT(A). 2. THERE IS DELAY IN FILING OF APPEAL BY THE ASSESSEE BY 473 DAYS. THE ORDER OF CIT(A) HAD BEEN RECEIVED BY THE ASSESSEE ON 23.3.2009 AND LAST DATE FOR FILING OF APPEAL BEFORE THE TRIBU NAL WAS ON 21.2.2010. ITA NO.4633/M/11 A.Y. 03-04 2 THE APPEAL WAS FILED BY THE ASSESSEE ORIGINALLY ON 13.1. 2010. THE SAID APPEAL WAS DISMISSED BY THE TRIBUNAL ON 5.4.2011 AS IT WAS FOUND THAT THE VERIFICATION COLUMN HAD NOT BEEN SIGNED BY THE ASSESSE E. THEREAFTER, THE ASSESSEE FILED THE PRESENT APPEAL ON 9. 6.2011. THE ASSESSEE HAS ALSO FILED AN APPLICATION DATED 8.6.2011 REQU ESTING THE TRIBUNAL TO CONDONE THE APPEAL IN FILING OF THE APPE AL. IT HAS BEEN SUBMITTED IN THE SAID APPLICATION THAT THE ORIGINAL A PPEAL HAD BEEN PREPARED AND FILED BY THE THEN CHARTERED ACCOUNTANTS M /S. U.K. GALA & ASSOCIATES AT MUMBAI AND INADVERTENTLY VERIFICATION COLUM N IN THE FORM NO.36 REMAINED TO BE SIGNED BY THE ASSESSEE THOUGH THE F ORM BORE SIGNATURES AT TWO DIFFERENT PLACES. THE CHARTERED ACCOUNTA NTS OMITTED TO NOTICE THE MISTAKE AND THE REGISTRY ALSO DID NOT ISSU E ANY DEFECT MEMO. THE ASSESSEE CAME TO KNOW ABOUT THE DEFECT IN APPEA L ONLY ON RECEIPT OF ORDER OF THE TRIBUNAL ON 5.5.2011. THE DE FECT WAS SUBSEQUENTLY RECTIFIED AND SECOND APPEAL WAS FILED WITHIN A MONTH ON 9.6.2011. THE ASSESSEE FILED AN AFFIDAVIT DATED 8.11.20 11 TO SUBSTANTIATE THE ABOVE CLAIM AND IT HAS BEEN REQUESTED T HAT THERE BEING REASONABLE CAUSE FOR THE DELAY THE SAME SHOULD BE CONDONED. 2.1 THE BENCH AFTER HEARING BOTH THE PARTIES WAS SATISFI ED THAT THERE WAS REASONABLE CAUSE FOR DELAY IN FILING OF APPEAL AND THE DELAY WAS THEREFORE CONDONED AND THE APPEAL WAS ADMITTED FOR HE ARING. ITA NO.4633/M/11 A.Y. 03-04 3 3. THE FACTS RELATING TO DISPUTE RAISED IN THIS APPEAL A RE THAT THE ASSESSEE FOR THE RELEVANT YEAR HAD DECLARED TOTAL INCOME OF RS.1,84,567/- AND ASSESSMENT WAS MADE UNDER SECTION 143(3) ON 23.1.2006 DETERMINING TOTAL INCOME AT RS.2,24,000/-. SUBSEQUENTLY CIT IN THE ORDER DATED 27.2.2007 UNDER SECTION 263 HE LD THE ASSESSMENT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERE STS OF THE REVENUE ON ACCOUNT OF CLAIM OF LIQUIDATED DAMAGES WHICH HAD BEEN ALLOWED IN THE ASSESSMENT AND ACCORDINGLY SET ASIDE THE ASSE SSMENT ORDER AND DIRECTED THE AO TO RE-DO THE ASSESSMENT AFRESH. IN THE FRESH ASSESSMENT, THE AO NOTED THAT THE ASSESSEE VIDE AGREEMENT D ATED 19.9.1996 HAD ADVANCED LOANS OF RS.6.00 CRORES @ 24% PER ANNUM TO ENTERPRISE TRADING COMPANY FOR A PERIOD OF SIX MONTHS AND LOAN WAS REPAYABLE ON 17.3.1997. THE AO NOTED THAT UNDER CLAU SE 1.5 OF THE AGREEMENT, THE BORROWER WAS REQUIRED TO PAY LIQUIDAT ED DAMAGES @ 48% PER ANNUM IN EVENT OF DEFAULT IN PAYMENT OF ANY INSTALMENT OF PRINCIPAL, INTEREST OR OTHER DUES ON THE DUE DATE. THE AO FURTHER NOTED THAT THOUGH BORROWER WAS PAYING PRINCIPAL AMOUNT, AN AMOUNT OF RS.1,33,07,817/- BEING INTEREST RELATING TO FINANCIAL YEARS 1996-97 AND 1997-98 WAS PENDING FOR RECOVERY. THUS INTEREST HAD NOT BEEN PAID BY THE BORROWER ON THE DUE DATE AND, THEREFORE, UNDER THE PROVISIONS OF THE AGREEMENT, LIQUIDATED DAMAGES @ 48% PER ANNUM O N THE ITA NO.4633/M/11 A.Y. 03-04 4 OUTSTANDING INTEREST LIABILITIES HAD ACCRUED TO THE ASSESSEE . AS ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 3.1 THE AO THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY ADDITION SHOULD NOT BE MADE TO THE TOTAL INCOME ON ACCO UNT OF LIQUIDATED DAMAGES. THE ASSESSEE EXPLAINED THAT THE TOT AL INTEREST FOR THE FINANCIAL YEARS 1996-97 AND 1997-98 WAS RS.1,81,38, 084/- AGAINST WHICH A SUM OF RS.40,96,460/- HAD BEEN RECOVERED BY SALE OF VARIOUS SECURITIES OFFERED BY THE ASSESSEE AND BALANCE AMOUNT OF RS.1,33,07,817/- WAS OUTSTANDING. AGAINST SAID OUTSTANDI NG AMOUNT, ASSESSEE HAD OFFERED 1403200 EQUITY SHARES OF WESTERN INDI A SHIPYARD AS SECURITY BUT THE SAME COULD NOT BE SOLD AS SHARES WERE VE RY THINLY TRADED WITH PRICE RANGING FROM RS.1 TO RS.3 AGAINST FA CE VALUE OF RS.10/-. THESE SHARES COULD BE SOLD ONLY IN FINANCIAL YEA RS 2004-05 AND 2005-06 AND AFTER ADJUSTING SALE PROCEEDS, THERE WA S STILL AN AMOUNT OF RS.13.75 LACS RECOVERABLE ON ACCOUNT OF INTEREST WHICH WAS SUBSEQUENTLY WRITTEN OFF BY THE ASSESSEE. IT WAS ARGUED T HAT THE ASSESSEE DESPITE PERSUASION AND ENFORCEMENT OF SECURITY, WAS U NABLE TO RECOVER INTEREST AMOUNT AND, THEREFORE, THE ASSESSEE H AD NOT CHARGED LIQUIDATED DAMAGES. IT WAS ALSO SUBMITTED THAT IN TERMS OF THE AGREEMENT, IT WAS REQUIRED THAT BORROWER SHALL PAY LI QUIDATED DAMAGES BUT THERE WAS NO POWER OR RIGHT GIVEN TO THE ASSESSEE T O CHARGE LIQUIDATED DAMAGES. THEREFORE, NO INCOME HAD ACCRUED TO THE ASSESSEE ITA NO.4633/M/11 A.Y. 03-04 5 ON THIS ACCOUNT. IT WAS ALSO SUBMITTED THAT THERE WAS NO R EAL INCOME AND THEREFORE, THE SAME COULD NOT BE TAXED IN CASE OF T HE ASSESSEE. THE ASSESSEE HAD NEITHER CHARGED NOR DEBITED THE PARTY F OR ANY LIQUIDATED DAMAGES NOR ANY SUCH DAMAGES WERE RECEIVED. IT WAS A CONSCIOUS DECISION OF THE ASSESSEE CONSIDERING FINANCIAL POSITIO N OF THE BORROWER AND MARKET CONDITIONS TO NOT CHARGE LIQUIDATE D DAMAGES. IN FACT BOTH PARTIES HAD AGREED NOT TO LEVY LIQUIDATED D AMAGES ON THE DEFAULT AMOUNT. THE ASSESSEE IN THIS CONTEXT FILED COPY OF LETTER DATED 15.3.1997 WRITTEN BY BORROWER TO THE ASSESSEE AND COPY O F LETTER DATED 31.3.1997 WRITTEN BY ASSESSEE TO BORROWER AND COPY OF LETTER DATED 5.4.1997 OF THE BORROWER WRITTEN TO THE ASSESSEE TO SUBSTANTIATE THE CLAIM THAT LIQUIDATED DAMAGES HAD BEEN WAIVED. IT WAS ACCORDINGLY SUBMITTED THAT NO ADDITION SHOULD BE MADE. THE AO HOW EVER DID NOT ACCEPT THE VARIOUS CONTENTIONS OF THE ASSESSEE AND OBSERVED THAT SINCE THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNT ING, LIQUIDATED DAMAGES WERE TO BE TAXED IN THE HANDS OF T HE ASSESSEE. THE AO ACCORDINGLY ASSESSED LIQUIDATED DAMAGES WHICH WAS COMP UTED AT RS.63,87,752/- WHICH WAS ADDED TO THE TOTAL INCOME. 3.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND REITERAT ED THE SUBMISSIONS MADE EARLIER BEFORE THE CIT(A) THAT THE AS SESSEE HAD NEITHER CHARGED THE LIQUIDATED DAMAGES NOR RECEIVED A NY LIQUIDATED DAMAGES AND THEREFORE NO INCOME COULD BE ASSESSED ON THIS A CCOUNT. ITA NO.4633/M/11 A.Y. 03-04 6 IT WAS ALSO SUBMITTED THAT BORROWER WAS NOT ABLE TO PAY INTEREST AS IT WAS FACING FINANCIAL DIFFICULTIES. ACCORDINGLY THE BORRO WER VIDE LETTER DATED 15.3.1997 HAD REQUESTED THAT THE AGREEMENT MAY BE SUITABLY MODIFIED IN RESPONSE TO WHICH, THE ASSESSEE VIDE LETTER D ATED 31.3.1997 AGREED TO REDUCE THE RATE OF INTEREST TO 18 % FROM 1.4.1997 AND ALSO AGREED THAT NO LIQUIDATED DAMAGES WOULD BE CH ARGED ON THE OUTSTANDING AMOUNT . THE REVISED TERMS CONVEYED BY THE ASSESSEE WERE ACCEPTED BY THE BORROWER VIDE LETTER DATED 5.4. 1997. THE ASSESSEE ALSO FILED COPY OF LETTER DATED 31.3.1998 FROM T HE BORROWER REQUESTING THE ASSESSEE TO ALLOW REPAYMENT IN A PHASED MA NNER, AND ANOTHER LETTER REQUESTING ASSESSEE FOR RELEASE OF SHARES OF WESTERN INDIA SHIPYARD LTD. AND LETTER DATED 5.1.2006 REQUE STING THE ASSESSEE TO WAIVE THE BALANCE INTEREST. SINCE THE LAST THREE L ETTERS WERE FRESH MATERIAL FURNISHED FOR THE FIRST TIME BEFORE CIT(A), THE LATER REMANDED THE MATTER TO AO FOR EXAMINATION AND REPORT. THE AO IN THE REMAND REPORT OBSERVED THAT THESE LETTERS DID NOT AFFECT THE L EGAL POSITION IN THE CASE AND SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, INCOME ON ACCOUNT OF LIQUIDATED DAMAGES HAD A CCRUED TO THE ASSESSEE AND SHOULD BE ASSESSED TO TAX. THE ASSESSEE ON T HE OTHER HAND INSISTED THAT NO INCOME ON ACCOUNT OF LIQUID ATED DAMAGES HAD ACCRUED TO THE ASSESSEE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND REPORT OF THE AO, CIT(A) OBSERVED THAT THE LIQUIDATED ITA NO.4633/M/11 A.Y. 03-04 7 DAMAGES HAD ACCRUED TO THE ASSESSEE IN TERMS OF THE CONTRACT WHICH WAS ENFORCEABLE BY LAW. THE ASSESSEE BECAME ENTITLED TO LI QUIDATED DAMAGES AS SOON AS THERE WAS DEFAULT IN PAYMENT @ 48% PE R ANNUM. CIT(A) ALSO OBSERVED THAT THE ASSESSEE HAD NOT PRODUCED AN Y MATERIAL TO SHOW THAT THERE WAS ANY FRESH CONTRACT/AGREEMENT TO SU PPORT ANY WAIVER CLAUSE REGARDING LIQUIDATED DAMAGES. THE ASSESSEE HAD SUBMITTED ONLY FEW LETTERS WHICH WERE NOT CONCLUSIVE TO E STABLISH THE CASE. CIT(A) THEREFORE UPHELD THE ORDER OF AO ASSESSING INCOME ON ACCOUNT OF LIQUIDATED DAMAGES. AGGRIEVED BY THE SAID DE CISION, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, THE LD. AR FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT DUE TO POOR F INANCIAL CONDITION OF THE BORROWER WHO WAS NOT EVEN ABLE TO PAY INTEREST , THE ASSESSEE DID NOT CHARGE LIQUIDATED DAMAGES NOR ANY SUCH CHARGES WE RE RECEIVED BY THE ASSESSEE AND THEREFORE, NO INCOME HAD ACCRUED. IT WAS ALSO SUBMITTED THAT THE ASSESSEE VIDE LETTER DATED 31.3.1997 IN RESPONSE TO REQUEST OF THE BORROWER HAD AGREED TO REDUCE INTEREST RATE @ 18% AND FOR NOT CHARGING LIQUIDATED DAMAGES WHICH WERE ACCEPTED BY BORROWER VIDE LETTER DATED 5.4.1997. COPIES OF THESE LETTERS HA VE BEEN PLACED AT PAGES 15 TO 18 OF THE PAPER BOOK. THUS THE AGREEMENT HAD BEEN MODIFIED TO THE ABOVE EXTENT BY MUTUAL CONSENT. THERE FORE, IN TERMS OF MODIFIED AGREEMENT, THERE WERE NO LIQUIDATED DAM AGES PAYABLE TO ITA NO.4633/M/11 A.Y. 03-04 8 THE ASSESSEE. IT WAS ACCORDINGLY URGED THAT NO INCOME HAD A CCRUED ON ACCOUNT OF LIQUIDATED DAMAGES AND THEREFORE, ADDITION SHOULD BE DELETED. THE LD. AR PLACED RELIANCE ON THE FOLLOWING JUDGMENT IN SUPPORT OF THE CASE: I) 26 IT 27 IN THE CASE OF E.D. SASSOON & COMPANY LTD. VS. CIT (SC); II) 46 ITR 144 IN THE CASE OF CIT VS. SHOORJI VALLABHDAS A ND CO. (SC); III) 303 ITR 159 IN THE CASE OF CIT VS. GOYAL M G GASES P. L TD. (DEL.); AND IV) 295 ITR 290 IN THE CASE OF CIT VS. GOVIND AGENCIES P. LTD.(ALL.) 4.2 THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDER S OF AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE RESPECTIVE ORDERS. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING SUSTAINA BILITY OF ADDITION ON ACCOUNT OF LIQUIDATED DAMAGES MADE BY AO. THE ASSESSEE WHO WAS IN THE BUSINESS OF FINANCING HAD ADVANCED LOAN OF 6.00 CRORES AT 24% P.A. TO ENTERPRISE TRADING COMPANY FOR A PERIOD OF SI X MONTHS. THE LOAN WAS REPAYABLE ON 17.3.1997. AS PER CLAUSE 1.5 OF T HE AGREEMENT, THE BORROWER WAS REQUIRED TO PAY LIQUIDATED DAMAGES @ 48% P.A. IN ITA NO.4633/M/11 A.Y. 03-04 9 EVENT OF DEFAULT IN PAYMENT OF ANY INSTALMENT OF PR INCIPAL, INTEREST OR OTHER DUES ON THE DUE DATE. IN THIS CASE THE ASSESSEE HAD RECOVERED THE PRINCIPAL BUT THERE WAS DEFAULT IN MAKING PAYMENT OF INTEREST ON THE DUE DATE AND A SUM OF RS.1,33,07,817/- REMAINED O UTSTANDING. THE AO HAS TAKEN THE VIEW THAT THE PAYMENT ON ACCOUNT OF LIQUIDATED DAMAGES HAD BECOME DUE TO THE ASSESSEE IN TERMS OF THE AGR EEMENT AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. HE HAS THEREFORE ASSESSED THE LIQUIDATED DAMAGES AS INCOME OF THE ASSESSEE AT RS.63,87,752/-. THE ORDER OF THE AO HAS BEEN UPHEL D BY CIT(A). 5.1 THE CASE OF THE ASSESSEE IS THAT THE BORROWER WAS FACING FINANCIAL DIFFICULTIES AND WAS NOT ABLE TO PAY INTEREST . THE TOTAL INTEREST FOR THE FINANCIAL YEARS 1996-97 AND 1997-98 AMOUNTED TO RS.1,81,38,084/- AGAINST WHICH A SUM OF RS.40,96,460/- HAD BEEN RECOVERED BY SALE OF SECURITIES OFFERED BY THE ASSESSEE AND BALANCE AMOUNT OF RS.1,33,07,817/- WAS OUTSTANDING. THIS BALANCE AMOUNT REMAINED OUTSTANDING FOR SEVERAL YEARS AND HAD TO BE ADJUSTED AGAINST SALE OF SOME OTHER SECURITIES IN FINANCIAL YEARS 2004-05 AND 2005-06 AND STILL THERE WAS AN AMOUNT OF RS.13.75 LACS RECOVERAB LE WHICH HAD TO BE WRITTEN OFF BY THE ASSESSEE. IN VIEW OF THE FINAN CIAL DIFFICULTY FACED, THE BORROWER VIDE LETTER DATED 15.3.1997 REQU ESTED THE ASSESSEE TO MODIFY THE TERMS AND CONDITIONS IN RESPONSE TO WHICH ASSESSEE VIDE LETTER DATED 31.3.1997 AGREED TO REDUCED R ATE OF ITA NO.4633/M/11 A.Y. 03-04 10 INTEREST TO 18% FROM 1.4.1997 AND ALSO AGREED TO NOT CHARGE ANY LIQUIDATED DAMAGES. THESE REVISED TERMS WERE ACCEPTED BY BORROWER VIDE LETTER DATED 5.4.97. IN VIEW OF THIS POSITION, T HE ASSESSEE HAD NOT DEBITED THE ACCOUNT OF THE BORROWER ON ACCOUNT OF LIQUI DATED DAMAGES. THEREFORE, IT HAS BEEN SUBMITTED THAT NO INCOME HAD AC CRUED TO THE ASSESSEE ON ACCOUNT OF LIQUIDATED DAMAGES AND SAME WAS THER EFORE NOT ASSESSABLE. 5.2 WE HAVE CAREFULLY CONSIDERED THE VARIOUS ASPECTS OF TH E MATTER. AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF MOR VI INDUSTRIES LTD. VS. CIT (82 ITR 835), IN MERCANTILE SYSTEM OF ACCOUN TING, INCOME ACCRUES WHEN IT BECOMES DUE FOR PAYMENT AND POSTPONEMENT OF PAYMENT OR NON RECEIPT OF INCOME AFTER THE SAME HAD ACCR UED DOES NOT STOP THE ACCRUAL OF INCOME. THEREFORE, ONCE THE INCOME H AS BEEN EARNED, THE SAME HAS TO BE DECLARED AND CANNOT BE FORE GONE AFTER THE END OF THE PREVIOUS YEAR. THE ONLY OPTION IN THAT CA SE IS TO CLAIM WRITE OFF AS BAD DEBT IF CONDITIONS ARE FULFILLED. HOWEVER, BEFORE THE END OF THE PREVIOUS YEAR, IF THE ASSESSEE HAD FOREGONE THE INCOM E OR MODIFIED THE TERMS AND CONDITIONS AND AS PER MODIFIED TERMS, THE AMOUNT IS NOT PAYABLE, IT CAN NOT BE SAID THAT INCOME HAS ACCRUED TO TH E ASSESSEE. IN THIS CASE, MUCH BEFORE THE END OF THE RELEVANT YEAR, T HE BORROWER VIDE LETTER DATED 15.3.1997 HAD REQUESTED FOR MODIFICATION OF TERMS AND CONDITIONS AND ASSESSEE VIDE LETTER DATED 31.3.1997 HAD A GREED TO NOT ITA NO.4633/M/11 A.Y. 03-04 11 CHARGE ANY LIQUIDATED DAMAGES AND REDUCE THE RATE OF I NTEREST TO 18%. ONCE BOTH THE PARTIES AGREED TO MODIFY THE TERMS AND CO NDITIONS, THE RELEVANT TERMS RELATING TO CHARGE OF THE INTEREST AND LIQUIDATED DAMAGES STOOD MODIFIED AND THERE WAS NO NEED TO ENTER INTO ANY FRESH AGREEMENT. IN TERMS OF THE MUTUALLY MODIFIED TERMS, THERE WAS NO LIQUIDATED DAMAGES PAYABLE TO THE ASSESSEE. THESE LETTE RS HAD BEEN REFERRED TO BY THE ASSESSEE BEFORE THE LOWER AUTHORITIE S AND ARE PART OF THE RECORD IN THE PAPER BOOK WHICH SHOW THAT LIQUIDATE D DAMAGES HAD BEEN FOREGONE BY THE ASSESSEE AND THERE IS NO ADVERSE FIN DING ON THIS ASPECT BY THE AUTHORITIES. THE FACT THAT THE ASSESSEE HAD F OREGONE THE LIQUIDATED DAMAGES IS ALSO CLEAR FROM THE FACT THAT THE ASSESSEE HAD NOT DEBITED THE ACCOUNT OF THE PARTY FOR THE LIQUIDA TED DAMAGES. 5.3 UNDER THESE CIRCUMSTANCES, WE ARE UNABLE TO SUSTAIN TH E STAND OF THE LOWER AUTHORITIES THAT INCOME ON ACCOUNT OF LIQU IDATED DAMAGES HAD ACCRUED. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE JUD GMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SHOORJ I VALLABHDAS AND CO. (46 ITR 144), RELIED UPON BY THE LD. AR. IN THAT CASE THE ISSUE WAS REGARDING ASSESSABILITY OF COMMISSION AT HIGHER RATE A S PER OLD AGREEMENT FOR ASSESSMENT YEAR 1948-49 AS THE COMMISSION HAD BEEN ENTERED AT THE OLD RATE IN THE BOOKS OF ACCOUNT. HOWEVE R THE SUPREME COURT NOTED THAT WITHIN THE PREVIOUS YEAR ITSELF PART IES HAD AGREED FOR REDUCING COMMISSION THOUGH THE SAME WAS APPROVED IN THE G ENERAL ITA NO.4633/M/11 A.Y. 03-04 12 MEETING AFTER THE END OF THE YEAR. THEREFORE, IT WA S HELD THAT THE COMMISSION AT THE NEW RATE WAS ONLY ASSESSABLE THOUGH ENTRI ES AT HIGHER RATES HAD BEEN MADE. THE PRESENT CASE STANDS ON A BETTER FOOTING AS IN THIS CASE THE ASSESSEE HAD NOT MADE ANY ENTRY REGARDING LIQUIDATED DAMAGES WHICH HAD BEEN FOREGONE AS PER REVI SED TERMS AND CONDITIONS LONG BEFORE RELEVANT ASSESSMENT YEAR. IT IS ALSO PERTINENT TO NOTE HERE THAT BOTH THE PARTIES HAD AGREED IN MARCH 2 007 TO REDUCE RATE OF INTEREST AND TO NOT CHARGE LIQUIDATED DAMAGES. THE DEPARTMENT HAD ACCEPTED THE PART RELATING TO REDUCTION OF INTEREST AS THE ASSESSEE HAD BEEN ASSESSED AT THE REDUCED RATE OF INTEREST OF 18% BUT NOT ACCEPTED OTHER PART RELATING TO FOREGOING THE LIQUIDA TED DAMAGES WHICH IS NOT JUSTIFIED. IT IS FURTHER NOTED THAT LIQUIDATED DAMAGES AS PER ORIGINAL AGREEMENT ACCRUED FROM THE YEAR 1997-98 ONWA RDS BUT THE DEPARTMENT HAD NOT ASSESSED ANY LIQUIDATED DAMAGES TILL ASSESSMENT YEAR 2002-03 AND ADDITION HAS BEEN MADE FOR THE FIR ST TIME IN ASSESSMENT YEAR 2003-04. ONCE THE CLAIM OF THE ASSESSEE HAS B EEN ACCEPTED IN EARLIER YEARS THAT NO INCOME HAD BEEN ACCRUED ON ACCOUNT OF LIQUIDATED DAMAGES, DEPARTMENT WILL BE JUSTIFIED T O ASSESS THE SAME IN THE SUBSEQUENT YEAR. IN ANY CASE, AS WE HAVE HELD EA RLIER, IN VIEW OF THE MODIFIED TERMS AND CONDITIONS AGREED BETWEEN TH E PARTIES IN THE YEAR 1997, NO INCOME ON ACCOUNT OF LIQUIDATED DAMAGES H AD ACCRUED TO THE ASSESSEE. WE ARE THEREFORE UNABLE TO SUSTAIN THE ORDER OF ITA NO.4633/M/11 A.Y. 03-04 13 CIT(A) CONFIRMING THE ADDITION ON ACCOUNT OF LIQUIDATE D DAMAGES. THE ORDER OF CIT(A) IS SET ASIDE AND ADDITION MADE IS, DE LETED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.11.2012. SD/- SD/- (H.L. KARWA ) PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 16.11.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.